Russia's oligarchs guard political might

Under Putin, a new middle class has emerged, but socio-economic changes haven't yet translated into political clout.

    Mikhail Prokhorov, a presidential candidate, is not the first Russian billionaire to dabble in politics [EPA]

    Russia's oligarchs, the class of ultra-rich that emerged during the 1990s, have notoriously close ties to the country's political class.

    The billionaires have retained their political might since Vladimir Putin first became president in 2000. Even so, the long-sidelined middle class, has ballooned during the relative stability of the past decade and wants the ruling elite to be more responsive to its needs.

    As the exiled billionaire Boris Berezovsky argued a decade ago, the absence of a sizable middle class justified, in his view, the political role he and other billionaires had taken upon themselves, as guardians of the country's nascent democracy.

    Now that Russia has a middle class and civil society, as recent protest movements have demonstrated, will the oligarchs and political elite be prepared to make space for them?

    Alexander Rahr, programme director at Berthold Beitz Center for Russia, Ukraine, Belarus and Central Asia at the German Council on Foreign Relations, believes there is a misperception that ordinary Russians have been economic losers during the Putin years.

    Putin, the leading candidate in Sunday's presidential election, has served two terms as president and is currently Russia's prime minister.

    For most of this period, he has been immensely popular across Russia, with many enjoying substantial improvements in their living standards. The love affair has soured in recent months, and Russia has witnessed the largest demonstrations since the fall of the Soviet Union.

    "The irony is that Putin created the same class that is protesting now," Rahr said.

    Many Russians have taken to the streets because the political structures have failed to keep a pace with the socio-economic transformations, he added.

    "The oligarchs still have a disproportionate influence on Russia's political affairs, while the middle class feels their voice isn’t being heard at the political level," he said.

    Money and power

    In the post-Soviet era, dozens of newly-wealthy business magnates muscled their way into politics, as behind-the-scenes allies of the Kremlin. In a country where official approval is crucial to doing business, most oligarchs, as they quickly became known, try to maintain good relationships with the authorities.

    Mikhail Prokhorov was the only independent to be accepted by the electoral commission to run as a candidate in the 2012 presidential election. He is widely viewed as a billionaire playboy lacking political depth, which is how the Kremlin prefers its oligarchs.

    A counter example is Mikhail Khodorkovsky, who famously suffered Putin's wrath when he dared to venture into the political realm as a potential opponent.

    The oil tycoon was convicted of tax evasion on profits made by his oil company, Yukos, in 2003. Khodorkovsky was dealt a second conviction in December and will most likely remain in prison until 2016.

    The arrest was widely criticised as being politically motivated in the West, but the public had a much less rosy perception of Khodorkovsky, one of Russia's "robber barons", as they are known.

    Another renegade oligarch is Boris Berezovsky, who lives in self-imposed exile in London. Once a member of Yeltsin's inner circle, Berezovsky was a member of the Russian parliament and a financer of Putin’s Unity party (which later merged into United Russia), but quickly became a vocal critic of the premier.

    Whether allies or foes, most of the oligarchs owe their wealth to the chaotic and corrupt transfer of state wealth into private hands that took place under then-President Boris Yeltsin two decades ago.

    In an article he wrote for the Washington Post in 2000, Berezovsky defended the political role "the creatures of President Yeltsin," as he described himself and other oligarchs:

    As for undue influence, our critics should not forget that a strong civil society and the middle class that serve to protect democratic liberties in the West do not exist in Russia. What we have are communists - still too powerful - and ex-KGB people who hate democracy and dream of regaining lost positions. The only counterbalance to them is the new class of capitalists, who, under extraordinary circumstances, find it acceptable - indeed, necessary - to interfere directly in the political process.


    Berezovsky, right, was an ally of Yeltsin but quickly became an outspoken critic of Putin [EPA]

    Ahead of the 1996 presidential election, Yeltsin was trailing the  in the polls. The newly-formed class of billionaires came to his rescue, however, sponsoring a last-minute television campaign. Berezovsky openly refers to this campaigning support as having been crucial to Yeltsin's victory.

    George Soros, the Hungarian-American business magnate, condemned the economic reforms under Yeltsin as "phony capitalism" that had served to redistribute Russia's enormous natural resources, and corresponding political power, to the lucky few.

    "The assets of the state were stolen, and then when the state itself became valuable as a source of legitimacy, it too was stolen," Soros said at a speech in Moscow in 1998.

    Changing times

    During Putin's time in power, the oligarch elite has grown ever richer. Last year, Moscow ousted New York as the city with the highest number of billionaires. The Russian capital's billionaire population jumped from 58 to 79 in the space of a single year, as reported by Forbes.

    Inequality in Russia increased from 39.9 in 2001 to 42.3 in 2008, according to the gini co-efficient, a measurement used to evaluate income inequality.

    And yet, while Russia's very rich became even richer, its very poor became less poor at an even faster rate, as Rahr pointed out.

    The lifestyles of Russia's megawealthy have little in common with that lived by ordinary citizens [EPA]

    In contrast with the 1990s, inequality under Putin has grown at a slower rate than any of the other BRIC countries (Brazil, Russia, India and China), suggesting the fruits of Russia's economic growth have been more fairly distributed than in comparable economies. It also compares favourably to the US, where the income disparity has risen much more quickly over the same period.

    Anton Stroutchenevski, a senior economist at Moscow's Troika Dialog, said the most important measure was the significant number of people who have gone from poverty, to living relatively comfortable, middle class, lifestyles.

    "I don't think the task of the government should be the reduction of inequality. The task of the government should be to reduce the amount of people who are very poor," he said.

    He noted rapidly rising wages, a decrease in unemployment and a rise in state pensions as factors that have helped a wider share of the population participate more actively in the economy.

    "On average, wages increased by something like 20 times, which means more and more people belong to the middle class by international definitions,” Stroutchenevski said.

    The increase in the middle class has, in turn, driven up domestic consumption, helping fuel further economic growth, he said.

    "The growth is driven mostly by the increase in domestic demand," he said, predicting four per cent growth for 2012, compared to an average of five per cent since 2000.

    Even the oligarchs, he said, are diversifying their investments beyond the resource-extraction sectors in which they made their fortunes.

    The Organisation for Economic Co-operation and Development (OECD) has also praised Russia for its high economic growth, stabilising the employment market and poverty reduction in recent years.

    Still, things are far from perfect for the rising middle class. A relatively high number of Russians still live in poverty - 17 per cent, compared to an average of 11 per cent for the OECD.

    Employment conditions are often difficult, and unions are given little leeway to lobby for employees’ rights. Small business owners combat excessive state bureaucracy and corruption is rife, meaning those with scarce financial and political clout often face a losing battle.

    In a December 2012 report, the OECD recommended that the Russian government take more steps to assist its poorest citizens, including more financial assistance to families with children and the unemployed.

    Backlash against nepotism

    Critics of the governing United Russia party say it serves the wealthy at the expense of the rest of the country. That means encouraging a culture of lawlessness and corruption, they argue. The extractive industries are exploited while officials do little to promote innovation and industry.

    "The financial-economic course of the country is designed not to protect the interests of workers, but to serve the oligarchs, whose party is United Russia," Gennadiy Zyuganov, the leader of the Communist party has previously said.

    In its December overview of Russia's economic situation, the OECD called for a softening of the state's hands-off, neo-liberal approach, calling for "decisive actions to fight corruption and strengthen the rule of law as well as to enhance power efficiency." 

    Alexey Navalny, a lawyer who blogs against corruption, has drawn tens of thousands of demonstrators to rallies against alleged vote fraud [EPA]

    The OECD also called for a fairer tax system, rather than the regressive flat tax currently in place that favours the very wealthy.

    When the centre-left A Just Russia party tried to pass a progressive taxation bill through parliament, it was blocked by United Russia.

    The swell of popular anger at the perceived political cronyism is best proven by the popularity of Alexei Navalny. Navalny, one of the faces of the protest movement, rose to fame for his blog denouncing alleged corruption at state-run corporations such as Gazprom and Rosneft.

    His catch phrase, "a party of crooks and thieves," became the anthem of December's protests, in reference to the cosiness of United Russia and the oligarchs.

    There are signs that the authorities are becoming more sensitive to public opinion.

    Bribing a foreign public official became illegal last May. This month, two weeks before the election, Russia began the accession process for the OECD Anti-Bribery Convention, which concerns bribes paid on international transactions.

    Patrick Moulette, head of the OECD Anti-Corruption Division, said that Russia's decision to become party to the convention would help improve the business climate.

    "Bribes increase the cost of doing business," he said. "The poorest people in society are always the biggest victims of corruption."

    The most important step, he added, is the implementation and enforcement.

    SOURCE: Al Jazeera



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